Unanswered Puzzles

The events of the past nine months raise two different sorts of question. One is what we ought to do in the future. The other is what happened and why. I would like to consider the second question. In order to make clear why I think there is a puzzle, I will start with a very brief summary of the relevant facts.

1. The Corporation ran a surplus, on both an accounting and cash flow basis, in 1992 and 1993, as reported in the financial summaries released by the then-Executive Director, Tony Provine.

2. As of the last Board meeting in 1993, there was no public evidence of any financial problem.

3. As of the first Board meeting of 1994, the Board asserted that the Corporation's financial problems were so severe that a membership rate increase of about 40% was inadequate and had to be supplemented by a new rule requiring membership to attend events--a change that had been proposed in the past and dropped because it appeared to be massively unpopular with the membership. The budget figures sent out by the Board implied a financial gap to be filled of about a quarter of a million dollars a year.

Under heavy pressure from the membership, the Board cancelled the required membership decision before it had actually been implemented, replacing it with a $3 per non-member event surcharge. The surcharge was publicly justified as necessary because of the financial emergency. A conservative estimate of income from the surcharge, assuming it is enforced, would be a hundred thousand dollars a year--in addition to the income from the rate increase.

4. The Board has never asserted that, between the last meeting of 1993 and the first meeting of 1994, any unexpected events occurred that would have imposed very large financial costs on the Society.

This series of events raises a puzzle--what happened to convert a modest surplus into an enormous deficit? We are not talking about small sums here--the gap is about a quarter of a million dollars a year, or roughly six times the Society's expense for insurance in 1993 (to take one item that some people seemed to think might be responsible). On the available evidence, I see only two plausible answers:

A. The financial emergency was real but was not, or ought not to have been, a surprise. Over the previous two years the Board had decided on a number of expensive changes in how the Corporation was run but had done nothing to provide the money to pay for them. It suddenly occurred to them in January of 1994 that the result would be a deficit. If that is what happened, the Board acted incompetently and irresponsibly, and those in charge owe us a public explanation and apology for doing so. That is the explanation that seems most consistent with the Board's letter to the membership--although the apology was missing.

A': The conspiratorial version of A, which I think less plausible. The Board wanted to do unpopular things such as imposing compulsory membership, which it thought it could get past the membership only in an emergency situation. It therefore created a financial emergency by voting expensive changes without doing anything about financing them.

B. The financial emergency was fictitious. Someone, possibly Provine, possibly one or more Board members, wanted to greatly increase the income and expenditure of the Corporation. He achieved that objective by panicking the Board into believing in a non-existent financial crisis and taking measures to deal with it.

If that is what happened, the Board members responsible (the ones who panicked, and also the ones, if any, responsible for misleading them) again owe us an explanation and an apology. Perhaps more important, if the financial emergency was a fiction, the surcharge should be eliminated immediately and the rate increase eventually eliminated or reduced.

Matters are complicated somewhat by the fact that the financial emergency became a self-fulfilling prophecy. The actions that the Board took have probably resulted in additional corporate costs, during this year, in the neighborhood of a hundred thousand dollars. My (very rough) calculations are:

Damages awarded in the Mandamus suit: $20,000

Legal costs of the suit to the Corporation: $40,000 (a guess)

Board letter mailing: $20,000

Board announcement in T.I., phone calls, extra travel, fedex, etc.: $20,000 (guess)

If this is right, the Corporation really does require extra money, from either the rate increase or the surcharge, both of which have only recently gone into effect--but it only requires the extra income temporarily, to make up for the sums wasted by (if my interpretation of the events is correct) the Board's mistakes.

So far I have been dealing with the financial puzzle. A second puzzle is the sequence of events that led to the Mandamus petition. Here a brief summary of the facts is:

1. The Bylaws provide, in what appears very clear language, that any member may examine the books of the corporation ("for any reasonable purpose at any reasonable time").

2. After the January meeting, when it appeared that the Corporation was suffering from some sort of financial emergency, some members attempted to exercise that right. The Board members they spoke to referred them to the Executive Director, who stalled for a considerable time and then refused their request. Negotiations occurred between the Board and members who wished to see the books. Accounts of what happened and why differ, but for whatever reason the Board did not permit those members, nor (so far as I know) any others, to see the books.

3. At that point, a group of members petitioned a California court for a writ of Mandamus to compel the Board to open the books; they also asked for some other things, most notably access to the mailing list if they wished to send out impeachment petitions. So far as I know, the Board's only public response to the legal action prior to the actual hearing was a press release put out on the electronic media by the Executive Director in the name of the Board. That press release claimed that the Board was fully complying with its bylaws and that the only question at issue was whether it was required to open its books by California statute. In fact, the petitioners had based their case on the bylaws not the statutes. The Board never disowned that press release, so although presumably drafted by Provine, it must be taken as the official stance of the Board that employed him.

4. The California Court ruled in favor of the petitioners on essentially all points, basing its ruling on the bylaws. It also awarded the petitioners $20,000 in legal expenses. The outcome suggests that the judge did not think the defendants had much of a case.

Here again, we are left with a puzzle--why did the Board refuse to obey its own bylaws, and why did it continue to do so even after it became clear that the other side was willing to go to court? Or, to put it a little differently, one question is why the Board wanted to keep the books closed and a second question is how it thought it could get away with doing so.

So far as I know, no answer to either question has been provided to the membership by the Board. One possibility is that it was the Executive Director, not the Board, who chose to keep the books closed--perhaps on the general principle that the less the members know, the less likely they are to interfere with the people running the organization. If so, the Board is at fault for failing to adequately monitor and control its employee--but we do not have to suppose that the Board actually had something it was trying to hide.

Why did the Board think it could get away with violating its own bylaws? One possibility is that it received, and believed, bad legal advice--bad enough to persuade the Board it was going to win a case which it seemed obvious to many people, including the judge who tried it, that the Board ought to lose. If so the Board is again at fault--and that particular error cost the Corporation a very large amount of money.

Another possibility is that the Board knew that, if the case came to trial, it would probably lose, but thought it could force the petitioners into backing down by making the cost of the legal action sufficiently high. According to a spokesman for the petitioners, the actual cost of the action to them was about $29,000. It would not be unreasonable for the Board to believe that, faced with such costs, and with no assurance that the court would award them legal costs even if they won, the petitioners would give up, allowing the Board to violate its own bylaws with impunity. If that is what happened, the Board members responsible owe us not only an explanation and an apology but, in my opinion, their resignation--from the Board and probably from the Society.


The point of this posting is simple. The Board has behaved, with regard to both its financial and its legal decisions, in a puzzling manner. The most obvious explanations are highly discreditable to the Board that made the relevant decisions--they imply, at the least, incompetence that did enormous damage to the Society. If one of those explanations is correct, the Board owes us an explanation, an admission of fault, and an apology. If some other explanation is correct, the Board owes us at least an explanation.

What I found most disturbing about the Board statements published in T.I. was that they simply ignored such issues. They claimed that the actions they took were justified by a financial emergency. But there was no explanation of where the financial emergency came from--how we acquired, in a space of three months, an unexpected deficit of a quarter of a million dollars a year. Not only was the puzzle not answered, it was never even posed.

Before closing, I ought to qualify my remarks in one way. I have spoken of "The Board" as if it were an individual, and as such responsible for its actions. But the Board of Directors of the SCA is a committee, and one whose membership has changed substantially over the past nine months. If the Board did things that were wrong, then some Board members must have done things that were wrong--but it does not follow that all did, or even that any of the present Board members did. And in some cases the Board's failure to act might reflect, not the views of a majority, but the ability of a minority to block action.

All of this complicates questions about whether particular people were at fault. But I do not think it complicates the question of whether the Board owes the membership an honest explanation of what happened--something we have not yet gotten.

David Friedman